Less than zero

Its no coincidence that on the same day, Countrywide Financial (CFC) was bought out by Bank of America (BAC) and JP Morgan (JPM) was said to be a rumored suitor for Washington Mutual (WM). As I said, news of both occurred on January 11th. Both companies are set to announce earnings this month which will be accompanied by more massive write-downs of mortgage related debts; and both are in dire need of fresh capital. I had said on my January 10th blog, the night of January 9th EST in the states, that barring an announced bankruptcy by either of these, my top two candidates for some kind of confidence shattering bankruptcies, markets may have indeed set themselves up for at least some kind of bear market bounce. Most disturbing was the heavy slide into the close on Friday, even after the pre-arranged, forced marriage of Bank of America with Countrywide and a rumored JP Morgan save awaiting Washington Mutual. Given the ugliness of the close on Friday, more market managing news was released iafter the close in hopes of a avoiding increasing odds that a dislocation was in the cards when markets open on Monday, January 13th. The Wall Street Journal reported that Citigroup (C) was close to squeezing China and Saudi Prince Alwaleed bin Talal, already a major shareholder, for somewhere between $8 to $10-billion combined. My contacts that are well versed in the dark matter of the financial universe have indicated to me that barring a buyout, Countrywide Financial (CFC) was destined for ZERO and probabilities of the same fate for the largest S&L in the U.S., Washington Mutual (WM) had also increased substantially. What deal did the Fed's make with Bank of America to buy an asset that is worth less than zero? Regardless, its a shell game. Transferring the toxic assets on the books of Countryfried to that of Bank of America does not make them disappear. Its the summation of these assets that sit on the books of financial firms throughout the world that matters. Repackaging them won't make them go away. Especially as confidence deteriorates making a credit spiral even that much more difficult to arrest. And with gold now at a fresh new all-time nominal record, monetizing these assets is looking to be increasingly difficult for the world's central planners, Mssrs Bernake, Paulson, Trichet and King.